1. A firm can swap floating dollar payment for fixed euro receipts by combining both 1) paying LIBOR-$ and receiving a fixed amount in Euros and 2) paying a fixed amount in Euros and receiving LIBOR-€
A. True
B. False
2. Take the following quotes and determine the maximum amount of triangular arbitrage profit possible stating with $100,000 and making one trip around the triangle
----------------------------------------ASKS BIDS------------------------------------------------
Deutsche Bank: ----------------> £.784/€ £.781/€
Barclays:---------------------------> £.783/ £.780/ €
Deutsche Bank:----------------> $1.547/£ $1.541/£
Barclays:-------------------------> $1.548/£ $1.542/£
Deutsche Bank:----------------> €.8025/$. €.7950/ $
Barclays:--------------------------> €.8055/$ € .7945/ $
3. Assume the following information:
You have $1,000,000 to invest
Current spot rate of pound = 1.6000
90-day forward rate of pound = 1.5901
3-month deposit rate in U.S.= 3% (periodic rate)
3-month deposit rate in U.K.= 8% (periodic rate)
If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?